Policy Analysis No. 57

Dairy Policy and Public Interest: The Economic Legacies

By James F. Thompson and W. Frank Edwards
July 30, 1985

Executive Summary

Current U.S. dairy policy has evolved from legislation passed during the 1920s and 1930s. In 1922, Congress passed the immensely influential Capper-Volstead Act, with the apparent legislative intent of allowing farmers to form associations that gave them the advantages of corporate structure free from the threat of prosecution under the Sherman Antitrust Act.[1] Congress had perceived an imbalance of market power and wished to permit farmers to organize into cooperatives, so as to equalize their economic power vis-a-vis the corporations with which they did business. Rep. Andrew Volstead described the farmers’ predicament:

Business men can combine by putting their money into corporations, but it is impractical for farmers to combine their farms into similar corporate forms The object of this bill is to modify the laws under which business organizations are now formed, so that farmers may take advantage of the form of organization that is used by business concerns.[2]

Congress did not anticipate, however, that the cooperatives could develop such a degree of market power that competition and consumer interest would be adversely affected. It is clear from congressional testimony that farm interests hoped to increase the percentage of the farm-commodity dollar going into the farmers’ pockets, but Congress did not expect that this increase would be accomplished by raising retail prices or by the use of market power. Rather, it was to be accomplished through the efficiencies of vertical integration into marketing and distribution.[3]

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James F. Thompson and W. Frank Edwards are professors of economics at Murray State University.